One of the largest oil and gas companies,
Royal Dutch Shell plc
) is on track to enter into a production sharing agreement with
Ukraine. The deal was approved by local authorities in the
eastern Donetsk region. Shell will invest about $10-$50 billion
to extract shale gas in Yuzivska field.
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After France and Norway, Ukraine has Europe's third-largest shale
gas reserves of 42 trillion cubic feet as per the U.S. Energy
Ukraine pays about $430 per thousand cubic meters for Russian gas
- a considerably high sum. To end its dependence on Russian
natural gas supplies, Ukraine assigned Shell last year in May, to
develop the Yuzivska shale gas field.
The latest production sharing agreement is one of the biggest
projects in Ukraine. It is likely to lead to about 8-10 billion
cubic meters (bcm) of gas generation in 10 years. The deal is
expected to be finalized in the first quarter of 2013.
Royal Dutch Shell has outlined plans to focus on the more
lucrative and well performing exploration and production end of
the business. The group expects annual worldwide production to
increase some 25% by 2017-2018 (from 2011 levels), driven by a
new wave of project start-ups. Shell's targeted output will be
achieved primarily by new projects coming on-stream in Qatar,
Australia and North America. The company is currently assessing
more than 60 new projects and options that should guarantee
upstream growth till at least 2020.
In terms of assets, Royal Dutch Shell owns a strong and
diversified portfolio of global energy businesses that offer
attractive long-term growth opportunities. The group's strong
inventory of development projects and increased capital
expenditures should help volume growth in the long run.
However, Royal Dutch Shell projects investment of some $30
billion in 2012, quite high by industry standards. This is
expected to substantially increase the group's leverage and
deteriorate its credit metrics in the current downturn.
Additionally, the increasing capital intensity of its operations
may result in reduced returns going forward.
Royal Dutch Shell currently carries a Zacks Rank #3 (Hold). Other
oil biggies, which are expected to perform in-line with the